Aug 1, 2014

Whidbey Island Transit Woes

Here on Whidbey Island, there is a public bus system that runs from the ferries on the south end- who take commuters and vacationers to and from the island- all the way up the island and beyond. This is all funded via sales taxes (9/10%) and is provided to riders at no charge for the ride. Recently, the routes have been significantly reduced following an major accounting error which revealed Island Transit to be financially insolvent.

Because this is a taxpayer-funded public measure, the island community is rightly upset at this mismanagement of resources. Specifically, I am interested in the investments Island Transit holds as revealed by former finance manager Sandra Kuykendall:

"During an interview this week,
Kuykendall explained that she’s audited the records and developed a picture of
what went wrong. She said Island Transit had $6.2 million in
investments when she retired in January of 2010. Of that, $4 million was
earmarked for the construction of a new facility. The rest essentially served
as a reserve for the operating budget."

Later, Kuykendall explained what she found after performing an audit:

"To cover the shortfall in operating
expenses, (scapegoated former Finance Manager) Savary spent large portions of the investments as they matured,
instead of reinvesting everything. By the end of 2010, about $500,000
of the investments were gone; another $700,000 was spent on operations in 2011,
Kuykendall said."

What are these "investments" and how could Island Transit dip into funds that were "earmarked for the construction of a new facility"? When she says "$500,000
of the investments were gone", where is "gone"? I wonder what audits for 2012-2014 reveal? I also wonder if Island Transit has a Comprehensive Annual Financial Report*.

"Earlier this year, Island Transit officials announced plans to cut the
Camano Island to Everett bus route, citing a lack of state tax money as
the primary reason...Yet new information reveals budget mismanagement and poor decisions may be the real reason bus service will be slashed.

According to an op-ed
by State Representative Dave Hayes (R-Camano Island),the Camano to
Everett route started when Island Transit officials successfully lobbied
Olympia for “start-up funds” from a $1.9 million state grant in 2006. The grant required
“other funding sources must ultimately replace” the temporary grant
money. Yet Island Transit officials continued to apply and receive
temporary grants for years. Nearly $7 million in start-up grants and
“legislative bailouts” kept the Camano to Everett route running, despite
promises from Island Transit officials of their intent to secure local
funding to maintain service."

Considering this happened earlier this year, it is surprising to hear Kuykendall indicate that "(Executive Director) Rose had every reason
to believe the money earmarked for the facility was still there and was
understandably 'blindsided' when the bills came due and Island Transit came up
short." Clearly, either Rose was completely out of touch or was aware at least to a certain extent that a serious problem was developing and failed to execute a proper plan to deal with the problem. The article at WPC makes this point as well:

"Island Transit leaders have failed to perform their duty to run this
agency responsibly. Rose was 'blindsided' when she heard the news of
financial mismanagement. The article says the Island Transit Board also
failed to review the financial statements. Both Rose and the Board assumed
the agency had sound financial footing. However, Island Transit’s
annual reporting to the Washington State Department of Transportation
clearly show reserve funds being spent.

Additionally, yearly cash flow statements sent to the State Auditor’s
Office also show the sale of investments outpacing the purchase of new
investments, netting the agency millions of dollars in cash." (Emphasis mine, see note below)

This is such a curious situation that it seems there is something amiss. How can such a major oversight have occurred, and where is all the money? Island Transit is notoriously impenetrable, but there are quite a few public meetings scheduled in the near future to discuss the changes that are being made. I hope a little more clarity will come to this story as the agency is scrutinized.

*NoteOne can find the Comprehensive Annual Financial Report (CAFR) of many different cities, counties, and states and other public entities which (if one is particularly savvy in accounting and/or knows what sections to analyze) reveal the financial condition that particular city is in. Cities are overwhelmingly involved in financial investments, and these investments as a source of revenue are shown in a CAFR. It is simply amazing to see the assets these entities have amassed with such investments- at a time when most governmental entities are cutting services, demanding more revenue, or both!See:

Comprehensive Annual Financial Report--Wikipedia"The primary difference between a budget and a CAFR is that where the
budget is a plan for the a fiscal period (often a year) primarily
showing where tax income is to be allocated, the CAFR contains the
results of the period (year) with previous years accumulations. A CAFR
shows the total of all financial accounting that a general purpose
budget reports does not. The CAFR contains a section that provides a
comparison of period budget and actual. Additionally, the CAFR gives a
detailed showing of investment accounts by category reflecting balances
over previous years."